Chapter 6

Summarized data for Ralph Corporation: Selling price$ 200per unit Variable expenses$ 150per unit Fixed expenses$ 1,000,000per year Unit sales25,000per year What is Ralph Corporation's margin of safety in dollars? $4 million $5 million $1 million $2.2 million

$1 million

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles? $12,000 $10,000 $20,000 $8,000

$12,000

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to $300 per bicycle. How much does profit increase if it sells one more bicycle? $500 $300 $200 $20,200

$200

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100, and decrease fixed expenses by $20,000. What is the net operating income after the changes? $21,500 $30,000 $24,500 $22,000

$21,500

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars? $25,000 $2,500 $250 $16,667

$25,000

The following information is extracted from the records of Johnson Corporation: Target profit$ 120,000 Unit contribution margin$ 40 Fixed expenses$ 40,000 Contribution margin ratio (CM ratio)0.40 Selling price$ 100 What are the sales dollars required to attain a target profit of $120,000? $400,000 $300,000 $10,000 $60,000

$400,000

Sales$ 100,000 Variable expenses50,000 Contribution margin50,000 Fixed expenses20,000 Net Operating income$ 30,000 If sales increase by $50,000, what will be the net operating income for the company? $25,000 $55,000 $15,000 $50,000

$55,000

Data for Hermann Corporation are shown below: Per Unit & Percent of Sales Selling price $100 & 100% Variable expenses $61 & 61 Contribution margin $39 & 39% Fixed expenses are $80,000 per month and the company is selling 3,700 units per month. 1-a. How much will net operating income increase (decrease) per month if the monthly advertising budget increases by $8,500, the monthly sales volume increases by 100 units, and the total monthly sales increase by $10,000? 1-b. Should the advertising budget be increased?

1-a: decreases by $4,600 1-b: no

Engberg Company installs lawn sod in home yards. The company's most recent monthly contribution format income statement follows: Amount & Percent of Sales Sales$ 148,000 100% Variable expenses 59,200 40% Contribution margin 88,800 60% Fixed expenses 19,000 Net operating income$ 69,800 1. What is the company's degree of operating leverage? 2. Using the degree of operating leverage, estimate the impact on net operating income of a 23% increase in unit sales. 3. Construct a new contribution format income statement for the company assuming a 23% increase in unit sales.

1. 1.27 2. increase by 29.21% 3. sales $182,040 100% Variable $72,816 40% CM $109,224 60% Fixed Exp $19,000 Net Operating Income $90,224

Mauro Products distributes a single product, a woven basket whose selling price is $24 per unit and whose variable expense is $17 per unit. The company's monthly fixed expense is $19,600. 1. Calculate the company's break-even point in unit sales. 2. Calculate the company's break-even point in dollar sales. (Do not round intermediate calculations.) 3. If the company's fixed expenses increase by $600, what would become the new break-even point in unit sales? In dollar sales? (Do not round intermediate calculations.)

1. 2,800 2. $67,200 3. 2,886 4. $69,257

Lucido Products markets two computer games: Claimjumper and Makeover. A contribution format income statement for a recent month for the two games appears below: Claim jumper-Makeover-Total Sales $ 112,000-$ 56,000-$ 168,000 Var. exp 34,600-7,400-42,000 CM $ 77,400-$ 48,600-126,000 Fixed exp 88,425 Net operating income $ 37,575 1. What is the overall contribution margin (CM) ratio for the company? 2. What is the company's overall break-even point in dollar sales? 3. Prepare a contribution format income statement at the company's break-even point that shows the appropriate levels of sales for the two products.

1. 75% 2. $117,900 3. Sales $78,600 - $39,300 - $117,900 Var. Exp. $24,282 - $5,193 -$29,475 CM $54,318 - $34,107 - $88,425 Fixed Expense $88,8425 Net operating income $0

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break-even point in unit sales? 63 units 167 units 50 units 100 units

100 units

Data for Hermann Corporation are shown below: Per Unit & Percent of Sales Selling price $100 & 100% Variable expenses $61 & 61 Contribution margin $39 & 39% Fixed expenses are $80,000 per month and the company is selling 3,700 units per month. 2-a. Refer to the original data. How much will net operating income increase (decrease) per month if the company uses higher-quality components that increase the variable expense by $3 per unit and increase unit sales by 15%. 2-b. Should the higher-quality components be used?

2-a: increases by $8,880 2-b: yes

Summarized data for Ralph Corporation: Selling price$ 200per unit Variable expenses$ 150per unit Fixed expenses$ 1,000,000per year Unit sales25,000per year What is Ralph Corporation's margin of safety in percentage? 20% 100% 80% 50%

20%

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage? 3.00 0.60 2.00 1.67

3.00

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? (Round your answer to the nearest whole dollar.)

300

The following information is extracted from the records of Johnson Corporation: Target profit$ 120,000 Unit contribution margin$ 40 Fixed expenses$ 40,000 Contribution margin ratio (CM ratio)0.40 Selling price$ 100 What are the unit sales required to attain a target profit of $120,000? 400,000 units 400 units 1,600 units 4,000 units

4,000 units

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio? 40% 60% 100% 20%

40%

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio? 40% 60% 100% 20%

60%

The current sales of Trent, Incorporated, are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income for Trent, Incorporated? 24% 30% 60% 25%

60%

With regards to interpreation, what are the important areas that appear on a CVP graph? Excess of variable costs over fixed costs Break-even point, loss area, and profit area Contribution margin Year-to-year sales volumes and dollars

Break-even point, loss area, and profit area

What is usually plotted as a horizontal line on the CVP graph? Fixed expenses Variable costs Sales revenues Break-even volume

Fixed expenses

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if advertising increases by $20,000. What is the change in net operating income after the changes? Increase of $20,000 Decrease of $20,000 Increase of $14,200 Decrease of $12,000

Increase of $14,200

The profit graph is based on the following linear equation: Profit = Unit CM x Q - Fixed Expenses. Sales = Unit CM - Unit Variable Cost. Profit = Unit CM x Q + Fixed Expenses. Profit = Selling Price x Q - Unit CM x Q.

Profit = Unit CM x Q - Fixed Expenses

What is represented on the X axis of a cost-volume-profit (CVP) graph? Sales revenue Fixed cost Unit volume Variable cost

Unit volume

Break-even computation of multi-product companies

fixed expenses / overall CM ratio

The measure of how sensitive net operating income is to a given percentage change in volume sales is called _______. sensitivity leverage operating leverage risk leverage

operating leverage

Contribution margin equals ________. sales minus fixed cost fixed cost minus variable cost sales minus variable cost minus fixed cost sales minus variable cost

sales minus variable cost

Break-even point is the level of sales at which ______. total profits equals total costs total profits exceed total costs total revenue equals total costs total sales equal total projections

total revenue equals total costs

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold. unit contribution margin unit selling price variable expense per unit fixed expense per unit

unit contribution margin